Q4 2019 Earnings Call
At time your lines will again be placed on musicals. Thank you for your patience.
[music].
Thank you for standing by welcome to Aptargroup 2019, fourth quarter and yearend conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. Introducing today's conference calls if mr., Matt Dellamaria Senior Vice President Investor Relations and community.
Patients. Please go ahead Sir.
Thank you Lisa welcome everyone.
Participating on our call today, or the Frontend up President and Chief Executive Officer about Q, and Executive Vice President Chief Financial Officer and Secretary.
You can find a copy of our press release as well as a slide presentation file that summarizes our results on our website.
We will also post the replay of this conference call on the web site.
Today's call include some forward looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from those projected are contained in the forward looking statements.
After undertakes no obligation to update the forward looking information contained therein I would now like to turn the conference call over to Scott.
Thank you, Matt and good morning, everyone. Thanks for joining us before I comment on the quarterly segment results, let me start by sharing them up the recent activities.
Since the breakout granola bars, our management team in China has taken very strict measures around health and safety of our employees and we're thankful to say that today, none of our employees have been affected with the worse.
We do not have any operations into one region, but beginning in late January we restricted employee travel to and from China and had been closely tracking and monitoring the situation.
There are keeping the most stringent protocols in place to keep our facilities in pristine condition.
Prior to the reopening of operations after the many Chinese new year holiday period.
We received special permission from the Chinese government to begin production in early February.
In order to supply our former customers, whose products are listed on the national emergency product.
We are however, experiencing some labor shortages due to government restrictions on the movement of people.
And we continue to update our customers with the latest supply in delivering information.
We're also continuously assessing the impact that the crisis will have no business in the first quarter and beyond.
But what is possible at this stage to predict if will extend the impact.
In addition to Chinese domestic retail beverage consumption the area most at risk appears to be our prestige beauty business due to the corner virus.
Significant negative impact on prestige and luxury consumption and travel retail.
You may see a positive impact to our business comes to closures for sanitizing and anti bacterial product, but it is also still too early to tell.
Extremely proud about people on the ground in China in how do you have rallied together during the difficult time.
Now moving onto other topics as shown on slide four in the presentation that accompanies the press release and is poised to draw website up there was named one of America's most responsible companies have 2025 Newsweek magazine.
As Rick mentioned about use Ci leadership by Newsweek. In addition to being named again by Barents is one of the top 100, most sustainable companies in America number the second here in the room, it's a reflection of our long term orientation to build a sustainable business and also testament to the commitment of our people to further and more inclusive in <unk>.
They have the world.
Turning to slide five.
Pharma segment had a good fourth quarter and benefited from strong growth in our consumer health care market injectable and Activision active packaging markets.
I'm pleased to true that our patent that unidos liquid system is the device delivering the first and only nasal rescue treatment. There was recently approved by the U.S. F D to treat acute repetitive seizures in people living with epilepsy.
This is ready to use risk to treat and it can be used when and where to see jokers. Thanks to a proven intuitive and convenient unidos system.
No well international which we recently acquired as part of our drive to build out the up the firmed up a pharma services platform developed and accompanying training device in partnership with our customer to be used as a part.
Patient Onboarding program.
These new products.
We also partnered with looping limited launched Indias first connected device for metered dose inhalers, well to cope mdrs.
And this probably a cold at hero.
This unique add on smart device is designed to help patients with chronic respiratory diseases.
Rectum, MDR usage and facility facilitate improvements here into the prescribed treatment regime.
Here is a Bluetooth enabled reusable smart device that attaches to talk with an MDR.
Built in sensors, the device direct to patient daily medication usage and consumption patterns.
In other pharma news relaunch the first of its kind combination.
Oxygen scavenging and moisture absorption active packaging solution.
This new technology utilizes our patent the three phase active polymer platform.
In the active film product configuration.
As shown on slide six in Oakland in our press release it wasn't exciting your pro forma segment as we broaden those services platform with the acquisitions of leaving analytical aboard dorries, none of foreman degree analytical.
And the training the rights in patient Onboarding export noble internationally Oh.
Also during the year several customers launched new U.S., if you approved drugs, featuring our delivery technologies, including our by those nasal spray.
The rights Unidos powder system needs when you only due to ours and active blister packaging solutions as shown on this line.
Now, let me turn to the beauty and home segment results starting on slide seven.
As you saw in the previous quarter, the second phase considerable challenges from weak demand from the personal care market, including customer Destocking.
We also saw several beauty customers reduce inventory, which weighed on our beauty topline growth.
However, we had some exciting activity in the fourth quarter.
Two sales office in Dubai, and Tokyo, Japan.
Surface meeting locations for our customers in these regions, we will support all three of our business segments.
We also celebrated the grand opening up on new facility in growing drew try not to be close proximity to our customers in southern China, who are sort of the world's leading brands and manufacturers.
In the order, we help close to launch a new patient serum Copeland gold.
Outreach as our dual delivery dispensing system. We also pleased to be featured on several European prestige fragrance launches, including new over the drilling cope caper Dolce and Gabbana.
Featuring a spray pump in custom American color and the Miss Your Rosen Roses perfume performed about LVMH, featuring it was pretty pump.
In North America, Oh small pump is found on the anti wrinkle zero zero retained by the end the brain topped a harper.
Finally, I want without drive towards a circular economy, starting this year in North America, we are converting our portfolio's stark what closures to post consumer research Rosen.
No I would like to take a moment to open in how we're strengthening our beauty packaging business to keep winning we used to come.
And on slide eight first we have close.
And our agreement to acquire the initial 49% equity interest in Btwob <unk>, a leading Chinese manufacturer of high quality decorative <unk> components.
Medical plastic sub assemblies, and complete color cosmetic packaging solutions for the beauty industry.
This is the first key step in our strategy to increase our capabilities and exposure to the first growing local Chinese beauty market.
Second we recently announced the acquisition of future Piquet Gi and asset light innovation leader in high quality complete skincare and color cosmetics packaging solution.
The added new agile concept to launch and turnkey capability through outdoor to serve to North American beauty market.
We've proven creativity engineering formulation for US go to market offerings fusion Peaker GE has strong existing relationships with both global cosmetics and skin care customers and with many indeed brands.
Today's market demand what is called that's beauty this is using P.G., especially.
He has built an incredible business that is an excellent complement to outdoors and we will eventually look to scale. This offering beyond North America to select with other regions.
Both fusion PPG and Btwob are growing profitable businesses and they will be margin accretive to the beauty and home segment.
Finally, we are taking the next steps in our ongoing business transformation.
Continuously evaluate and optimize our operations to adapt to changing market conditions to ensure we are delivering the very best through our customers as a result.
Decided to close our Stretford and Torrington, Connecticut sites and absorbing rationalize these production capabilities.
Into other existing after facilities in North America.
The transfer of productions blend to be completed by the end of the year would these changes we will be in the better position to serve our North American beauty and home Christmas and focus on long term profitable growth.
This is a combination of other steps, we have taken to streamline and modernize our beauty and home footprint.
2019 alone we sold our Liberty village, Illinois molding facilities, the one of our subcontractors and raise meet other consolidations in other regions. For example, we consolidated our two facilities in Argentina into one because all the production capacity there was in Indonesia, and drug Thailand facility, we consolidated two facilities engine.
In India into a new location.
Moving on to slide nine.
Our courts deals you know food and beverage segment declined due to read decreased beverage closures yields and the negatives effective passing on lower resin costs to our customers.
We launched new product in the quarter, including newly redesigned coconut than ever kind of oil cooking sprays for all the North America.
We treat your three year actuator.
Our non detachable tempur evident here Ben and closure also featured on the your Kuwait brand of infant Formula in China.
In the beverage market our sports closures are featured on the line of designing bottled water in Ecuador, and on several new didn't see bombed waters, but doesn't own in Brazil.
In summary, overall always was a challenging quarter due to the <unk> reduction in inventory, but several key customers.
Making it a difficult comparison to the prior year, where we were growing in all but one of our key markets.
Well, we navigate through these short term challenges we are taking several steps to position us for long term growth, including strategic investments in high growth areas with Btwob infusion PK G.
And the consolidation of our North American beauty and home operations with that I'll now turn it over to Bob who is going to walk through some of the financial details that impacted the quarter.
Thank you used to fund and good morning, everyone.
I'll briefly walk through some of the details concerning our fourth quarter results starting with slide 10.
For the fourth quarter 2019 reported sales declined 2% and.
And core style sales declined 1% in part due to the passing through lower resin cost to our customers.
Reported sales had a positive impact from acquisitions of 1%.
And negative impact from currency rates of 2%.
Our pharma segment achieved a core sales growth of 4%.
And then adjusted EBITDA margin of 35%.
Core sales to the prescription market decreased 3%.
Due to a tough comparison to the previous year, where the prescription market was up 17%.
Core sales to the consumer health care market increased 8% due to strong demand dermal drug delivery and I care.
This is very good growth over what was a strong performance last year when consumer health care was up 21%.
Core sales to the Injectables market increased 15%.
Due to strong demand across all regions and most applications.
Core sales to the active packaging market increased 13%.
Across a variety of applications, including our active blister packaging solution for oral solid dose drug delivery.
Turning to our beauty and home segment.
Core sales decreased 5%.
Primarily due to customers, reducing inventories, especially in the personal care market and the negative impact from passing on lower resin costs.
Beauty in homes adjusted EBITDA margin was 12% in the quarter.
Looking at sales growth by market on a core basis.
Core sales to the beauty market increased 1%.
Primarily due to an increase in tooling sales.
Core sales to the personal care market decreased 9%.
Due to the customer Destocking that had previously mentioned.
Core sales to the home care market decreased 8% due to lower sales to the air care and laundry application field.
Looking at our beauty, our food and beverage segment core sales decreased 1% in the quarter.
This includes the negative impact from passing on lower raw material costs, which negatively affected the growth by 4%.
Food and beverage adjusted EBITDA margin reached 13% due to productivity improvements and lower resin costs compared to the prior year.
Looking at each market for sale to the food market increased 6%.
Sales of our solutions for the non beverage dairy and granular powder categories.
Core sales to the beverage market decreased 19%.
Primarily due to lower sales Asian beverage customers.
Turning now to slide 11, with an effective tax rate of 28% fourth quarter adjusted earnings per share totaled 80 cents.
Prior year comparable earnings per share totaled 92 cents.
Slide 12, and 13 cover our annual performance and highlight or 3% core sales growth and 2% adjusted earnings per share growth.
Slide 14 refers to our outlook.
We are expecting earnings per share for the first quarter to be in the range of 85 to 93 cents per share using an expected tax rate range of 28% to 30%.
I have a few other details to share and then I will hand, it back to the fun.
In the quarter reported cash flow from operations was strong and totaled approximately $134 million.
Capital expenditures were approximately $55 million.
And as shown on slide 15, our free cash flow was approximately $79 million compared to approximately $38 million a year ago.
Higher earnings due to less restructuring and acquisition costs.
And working capital improvements led to the increase in free cash flow.
This brings our annual free cash flow to a record $272 million compared to 102 million in the prior year.
We continue to have a strong balance sheet and on a gross basis that the capital was approximately 43%.
Well on a net basis it was approximately 38%.
And we remain less than two times levered.
At this time Stefan will provide a few comments before we move into Q1 name.
Thanks, Bob So in closing I'd like to leave you with a few key takeaways.
Well the good year for out there with the core sales increasing 3%.
We achieved an adjusted EBITDA margin of 21% for the year and grew adjusted EBITDA by 8%.
It was also another year of outstanding performance about pharma segment, which grew 10%.
Driven in part by a very active year for new drug delivery launches.
We also also built out our pharma services platform with the acquisitions of noble international mental farming gateway analytical.
We partner with two important sustainability innovators theres cycles loop platform and pure cycle and we were pleased to be independently recognized by multiple parties, where our leadership on key DSG topics.
Our balance sheet is in great shape, and 2019 without twinkie six consecutive year of paying an increased dividend.
Looking to the first quarter, we face unusual demand uncertain is you do the economic impact from the Corona virus outbreak.
Our pharma business is facing somewhat difficult comparisons compared to the prior years exceptional growth, but remains of course, a key driver of our profitable growth.
Having launch in near term challenges, we're very optimistic about our long term opportunities for growth and we'll continue to invest in high growth areas in each of our businesses that we will open that up for your questions [noise].
Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound or hash key in the interest of time in fairness. All participants please limit yourself to two questions and one follow on question then come back into queue. If you have more questions. As time allows please standby movie comes.
Hi, Lucky when a roster.
And our first question comes from the line of George Staphos from Bank of America. Your line is open.
Hi, everyone. Good morning.
Thanks for the details and congratulations on the progress and 2019 hate. The first question I had Stefan and Bob could you give us a quick update on the business transformation.
The progress you saw in the quarter, you know kind of how it helped you in the quarter and and what the next milestones are in terms of 2020.
And then the next question I had before the follow on is just the de stocking that's going on you know I recognize that we've all been doing long time trying to track and figure out when de stocking and is up there with finding a cure for the common cold, but when do you think this destocking is largely done is it ties it.
On in the first quarter any thoughts there. Thanks.
Thanks, George and I prefer a cure for Corona virus at the moment.
Okay.
I want to go there but.
[laughter] so on the transformation just a stepping back again in mind that first year was really focused on topline and everything on the commercial front end of the business had worked well current situation on understanding.
19, we focus a lot an improvement in the factories and that has worked very very well also amongst others, allowing us to not consolidated in North America.
On all the Cape you guys around Oh, too so scrap rates and so on a much improved and customers are happy again without a service levels also I would say 90, we make good progress on the working capital.
Driving up our payables Oh, we're working on inventories receivables is always a work in progress with our huge CPG customers are acting like there.
Almost bankrupt, but oh forget that editorial and then as we look into this year fixed costs a g. any is a big part of the agenda. This year, we've mentioned before we've negotiated the.
With works Council in Europe, a which are always takes some time in Reno executing on those actions and of course, we've added some additional action with the North American footprint consolidation. So I think that kind of gives you. The the outlined for the transformation a on the one hand I feel very good because we are execute.
Getting everything that we set out to do on the other than that of course going through a good when I look at the results of that the drop through to the bottom line given the current demand environment is not a that visible in addition to that.
The exchange rate all that has changed from you know a 1000.
20, something when we kick this off to do they want to wait so the exchange rate eats up quite a bit of that.
On your second question I think when we were just looking at the Destocking scenario, we said it could be a man to water phenomenon. So Q4 Q1 no of course, we have a completely different situation with the Corona virus story.
So.
Hopefully the destocking on the personal care side in North America will run its course.
Towards the end of the quarter or early next quarter, but overlay on that is then the grown novartis impact.
Let me just see a few more words around that and they want to and of course, great. Nobody in fact, it's our plants are running but our plans only running but about 50% in China, because we can't get our workers to return to the factory due to travel restrictions.
Just give you a practical example, or a president and for Asia. This is in Shanghai. If she takes road trip to Sue Joe just two hours down the road to visit the factory she has to south currency in her again for two weeks. If you returns to Shanghai. So the movement of people is heavily restricted understandably so.
They are starting to opening up a transportation for a full truckloads and full container loads, but part of container loads for example, not so it's really the.
On the one of the Chinese government amongst view of course, a accelerate being open for business at the same time not compromise on the Corona virus situation.
And then for US the difficulty is to read through.
Marches by far our biggest month, usually in the quarter a into first quarter, what really exactly happening in March we have to domestic consumption in China. We have the fact that the luxury and the growth in Chinese consumers not traveling and more and more we see other people are not traveling people from Japan not traveling comfort.
This is being shut down.
On the west coast or in Europe.
So what will be the impact of that travel retail on the end consumption and then of course the read through on the orders on us. So you've noticed we opened up the the range of our outlook to the down just because of the uncertainty and we just don't know at this stage.
What.
That will do and what might be somewhat the offsets you know more sand rising products are supplying some product in the west that used to be supply by trainees at all these things.
It's just too early to call it.
[laughter] Stefan <unk>, thanks for all of that and I recognize the answer to this question will be generally very hard to tell and so you give us some slack, which we will.
But nonetheless, you did put out a guidance range for the quarter. So can you give us a couple of details in terms of whats.
And the lower end in higher end of your range in terms of your assumptions for krona virus.
If it's just tape, it's just a wide range and we'll take it as it comes or that's fine too but.
That's my question I'll turn it over.
Yeah, I mean, certainly we call it the best we see it in with the orders we can see we cannot account for a minute cancellations or postponements and we certainly open up the normal range to the downside for things that we can't see.
I think that's kinda, how we went about it.
Okay. Thank you.
Our next question comes from the line of Neel Kumar from Morgan Stanley. Your line is open.
Great. Thanks for taking my question just another follow up on the bidding on restructuring and your margin targeted 50% to 70% how much of any opportunity going forward is independent of the topline girls.
And then in terms of that consolidation of your North American beauty and home operations.
How should we think about a $20 million a cost flowing through in 2020 and how much benefit do you expect from this.
Yeah, Let me take the first one and then maybe Bob you can comment on the second one so it's certainly one we're not changing our targets are fully committed to our targets.
But it did assumed that we have and our continued to be able to grow in the three to.
Present range for beauty and home, which the end market is growing and I've no doubt, we will be able to grow as well. So having said that clearly that's not the case at the moment and and we need to work hard to earn the growth and partly that by repositioning our supply.
The ability and also some repositioning how close we are with customers their fusion plays in a abusing because you plays an important role.
Yeah, and Neil I, just want to reiterate something that that's the plan had said you know what can leave this is the appropriate time to to consolidate some of our north American factories due in part to.
To the efficiencies that Weve gained from the transformation efforts. So we believe this is the right transaction has an attractive payback and we would expect that paid back to be achieved over two to three years.
More specifically to your question on what to expect in 2020, <unk>, it's going to be minimal in 2020 and ramp up more towards the end of the fourth quarter and into 2021, but I think the the most important thing that seemed to take away is that it's another move to modernize our beauty and home business to become more for.
And and more agile to our customers needs.
Okay. That's that's helpful and in pharma can you just let's talk about what you're seeing in terms of trends in the allergy market Oh DC description I just can you give us a sense of the name to just slowed down you experienced in the fourth quarter.
Well.
It is doing what we said it would do is basically.
Overall pharma growth is a reverting to more normal range.
Maybe towards the bottom end of the range for a this year and do you. How would you were now these businesses certainly there's some most and makes as inventory in a chain, but I would expect it could grow at the GDP kinda rate.
Our next question comes from the line of Adam Josephson from Keybanc. Your line is open.
[noise] Stephane, Paul Matt Good morning.
Good morning enough or not.
Morning.
Stefan or Bob I know I am sure, Georgia is trying to get at this yeah, maybe I'll try a different way. So you're one Q guidance is 85 93 cents if current of Iris didnt exist and your customers. We're no longer Destocking is there anyway free for you to give us a sense of how much higher.
Or roughly if not precisely that range would be.
We are bullish shaking our heads.
A lot of Hypotheticals Ah I would put kind of point you back to our published targets or.
For.
Most of the business certainly we still have work to do and beauty and home margin then.
Food and beverage, China, but or whatever China, but.
Certainly much closer to our published target. So yeah, I mean, Adam I mean, you think backed October last time, we spoke right. We were just beginning to talk about you know the Q4 impact on de stocking and we were speculating is this you know this could conceivably be a two quarter phenomenon right. We had no idea.
On the horizon really to what magnitude that was going to impact Q1, and then as you get into this you know you now add in the Corona virus. So it's difficult to parse out exactly we didn't have a a real solid prediction for Q1 prior to the krona virus, that's why we're kind of shaking Brad.
For cold for us to to separate what those two what does to where because they you know the corners really came on in the beginning of January right at the time, we were formulating our outlook for the first quarter.
Yeah, no understood and stuff I think you said you maybe at the low end of year long term.
Targeted growth range for pharma for the year I know the next three quarters have really difficult comps and the comps get a lot easier in Fourq. You can you guess give us a sense of what you're expecting in that regard do you expect to be below the range in the first three quarters and then maybe in the met all the range and for Q.
[laughter].
If I could run the business would or would that a precision.
Right I would be happy Oh look I mean, just as a reminder, Rx grew 17%.
Previous.
Quarters.
So on a two year or read through not too shabby no. We clearly said that allergic rhinitis is going to slow down to more normal pace.
A lot depends how bad the allergy season is.
Something depends on the flu season. So that's.
Well I would say they are the arrangers seek to 10%.
Certainly I'm comfortable or the low end of the range, but you know its February.
On Makena Kishore quarter by quarter plays Yeah, Yep Yep understood and then just back to the beauty and home restructuring I know Stefan you talked about Efax and these demand had when sort of come up is it fair to assume that in terms of the 80 million target that you laid out a couple of years ago, you're you're actually on target to hit.
<unk> 80, but that there are so much so many other headwinds FX related demand related that are that they're just really completely offsetting all of these savings that you're getting in that business.
Yeah. The short answer is yet so a if we didn't do what we did we would be that much lower but of course. It doesn't help you name. It does help our shareholders and we're not happy with that either so we are adding additional activities in North America footprint is one of those and we're not stopping there.
Yeah.
This business will get into its a published a target profitability range, one way or another.
Thank you.
And our next question comes from the line of gun Chubb Panjabi from Baird. Your line is open.
Hey, guys good morning.
I guess a follow up to Georges question Adam's question, so back to beauty and home.
Ah core sales down 5% for Q, what are you assuming for once you at the midpoint of the guidance that you gave and is the lower end in upper end of the guidance predicated mostly by <unk> is it mostly influenced by being age or is there uncertainty with segments such as far as well.
Well, let me I'll take that will [laughter], though I'm, so sorry for western [laughter]. So I mean, you know us we don't we don't really gives segment core sales guidance going you know looking out into the future, but I mean, obviously, obviously beauty and home is jordi a sizable.
Ways of the business so the overall.
Core sales is gonna be heavily influenced by what's happening and beauty and home.
Yeah, I think the uncertainty you have in pharma is what can we get out the door in China.
Given the supply chain challenges and the labor challenges not so much demand related.
Okay and I know this is a while back in China was obviously in a different place a went went towards existed on growth standpoint, but if you just sort of look at that play book and you know the impact than it had on global travel and you know sort of overlaid as to what you're seeing right now how long do you think that impact on travel retail would just.
The big for your customers on the prestige side, what is reasonable in terms of fun the impact from quarterly standpoint, it's a one quarter two quarters. What do you think is realistic on that channel.
Yeah of course, we all look for analogies and we started with the Sars analogy, but let's remember this is 17 years ago I was actually in China right of Sars.
There was no travel restriction it was a and it was a completely different economy. It was an investment economy.
No high speed train network, no domestic flight network and no.
Affluent Chinese consumers buy them hundreds of millions so.
Yeah. The reality is this is not a good proxy not to scare anyone but probably the 2008 2009 is a better proxy in terms of impact on pull back up the consumer on and if you. If you will do that need to those nine two large economies U.S. in Europe kind of took a hit the pause button.
No. It's one large economy, China hit the pause button.
And that consumer is absent.
So I think a local depend how quickly people get comfortable getting an arb airplanes again and you know.
I'm looking to compete with the CDC I'm, calling that how quickly these measures can be lightened and people gain confidence again certainly.
Then when that happens there's a lot of pent up demand you know whatever is in your bathroom or in your fragrance bottles or a premium skin care will have run dry and people who want to replenish and.
Certainly not all of the travel that a wolfcamp wells will be done but.
So I love to go ahead.
Pretty much everything we'll have to do with how quickly people get comfortable getting back on airplanes.
Okay, and just one final one on pharma I mean, obviously have difficult comps throughout 2020 year over year is a 4% core sales that you generated in fourq use its other REIT trend line for 2020, I mean, you cited all these new products and applications and your slide deck, but well they actually benefit 2020 to mature away or they sort of future opportunities. Thanks.
Yeah. Some of them do some of them are going up that <unk> will become a ramp up come later, it's always hard to call what did the ramp up.
Success of new launches and.
As the experience than in the Doctor's office.
But I don't think your has more to it say then kind of the lowering of the pharma range.
Okay. Thank you.
And our next question comes from the line of Mark will de from BMO capital markets. Your line is open.
Good morning, Stefan Bob Matt.
Good morning America.
Morning.
To start out you know Stefan and Bob you guys, you talked about sort of the Destocking that was taking place in the fourth quarter.
We've had the kind of the emergence of there.
She is I'm just wondering on the last four to six weeks.
Have you been hearing incrementally from customers, particularly in that kind of prestige area.
They're pulling back even further because fears about kind of a travel slow down less duty free sales less kind of prestige and luxury sales.
Yeah at this stage real Shadow boxing Uh Huh.
So I can give you anecdotes for all the things that we talked about we see people pushing out orders.
Because they don't think they need the product you see people advancing orders because they don't think they can get the product from across the ocean.
We see people ordering more for sanitizer products and so we anecdotes for all of this exists, but you know how to work through quantification wise is.
I'm not that good.
Yeah, Bob what's your perception, just comparing it to kind of Oh wait nine I remember meeting with you in March Oh, nine and you were Steve how are you, saying you're out there are customers, we haven't heard from in five months.
Yeah, I mean that was there was a little bit different mark I mean that was more of a you know financial crisis. So I think at that time customers. We're more interested in the financial viability of their supply chains, and certainly having a strong balance sheet is we did back in a way was a benefit to us I think there was.
Is there was more of a concern there that their supply base would shrink we're diminish.
This is this is a little bit different but you know if we look at how the financial crisis impacted the beauty business certainly there was some some precipitous declines in Q1 in Q2.
In that 20% range Q3 was also down and but by Q4, we started to see things turnaround, but I think it's the funds I did it's really difficult to draw a good analogy to either Sars are all eight or nine there were dropped a little bit different but.
Certainly as we said in the past.
On a financial side beauty beauty products tend to be a little bit more discretionary I don't think this is right now of financial issue. It's more of a pandemic issue that that's that everybody's concerned with.
Okay, and then just staying on beauty and home I'm I'm just curious.
Talked about some of the restructuring.
In the U.S., but the you've done in Latin American Asia, you didn't mention Youre up in my perception over the last probably 12 months is that you had been having some conversations with works councils over in Europe.
And that we could see some more moves there can you give us any color about what potentially could be in the pipeline.
Okay.
The discussion here with the workouts and are all about existing projects. So for example, we opened the shared financial service center in the Czech Republic, and that is up and running and that will lead to a consolidation of headcount and we have.
A number of streamlining activities around overhead and the into plants.
And that has been negotiated let me not speculate on future projects you know.
This is not the place too.
You had said gosh <unk> the other one.
The other one I would highlight in addition to kind of this consolidation we of course also on the front foot.
On building out a new capabilities in the fast growing parts of the beauty business.
We're excited about the fusion PK GE acquisition, the separate taking with BT why any in general kind of building out a more service capability in a room as that lights fashion.
Okay last one for me just kind of the final Bob is it possible for you to help us just with the potential impact from kind of lower resin and the puts and takes for much stronger U.S. dollar.
Okay, so on and the resin side again, it depends on where we are in that cycle of pass through but we did have about 4 million dollar positive in the fourth quarter on the bottom line on the topline, though we also good get hit.
It's about half a percent of the beauty and home side and it was about 4% on the on the food and beverage side, so the impact and the flow through to the bottom line is going to depend on where we're at in that cycle.
As far as currency you know, what we said in the past and it's still really holds true.
Today is that for every penny move in the euro to dollar rate it equates to a two cents EPS on an annual basis.
So if you look at kind of you know where we were in the you know in the fourth quarter you know it averaged about 111.
And we started the first half for those this year the first half this quarter at around one Penn and we're trending now more into one or wait you know category. So if you if you kind of do that math and and spread that out over allocated over one quarter versus the full year, you'll have a rough estimate of.
The comparative moves.
I'll turn it over.
And our next question comes from the line Daniel Rizzo from Jefferies. Your line is open.
Hi, guys how are you.
Tell us what the cost is the cash cost is for closing Stratford and Torrington.
Yeah, not specifically, but it's a neighborhood of about $20 million cash costs.
I think you didn't mention that there's room for maybe additional comp sorry footprint consolidation in the U.S. One did you say that and I mean can you kind of provide color on magnitude or what you what you're looking at.
No I think in the U.S. I think what we're referring to is other activities that we had done you know such as selling our liberty Ville facility to to a one of our contract manufacturers and things like that but no I don't think we signaled that there was any any other further consolidation in the last.
And then let's question I would just within the pharma segment can you just provide color on on the margins, maybe kind of trickling down over the last couple quarters I don't know if it's just some sort of timing issue or.
Or if there's just a mix issue. It's just wondering if what's going on there.
Sure. So I mean I can address that if you were looking specifically at Q4, you got you got a couple affects one is the mix issue right Rx was down in the other three segments were up. So we know you said in the past Rx has as a stronger margin profile than our injectables our active packaging.
And our CHC, so you're going to get an impact on the mix secondly in the fourth quarter of last year, we had to gain on on propeller health, which positively impacted the Q4 2018 margin. So if you're looking at it those are the those are the two effects that that had an impact on them.
Margin comparison Q4, 19 in Q4 18.
Thank you very much.
And our next question comes from the line of gave the high she from Wells Fargo Securities. Your line is open.
Scoring gentleman to two questions one he to kind of be dead horse your repeating home but.
Is there any way for us to assess on the outside world or or give us comfort that this is in fact destocking when I look at some of the other actions that you guys are taking you talked about incremental to your transformation efforts might suggest.
More of a structural headwind in the segment, maybe competitive landscape or something else that change and then Stefan you mentioned kind of getting to your margin target one way or another I'm. Just curious maybe if you can expand on that and then still kind of remind us of the strategic merit of of having all these different businesses together.
How many question it was that so.
Maybe let me let me deal with the question on the on the structural headwinds and competitive landscape M&A I think what we've been talking about for quite some time is that you know within the beauty and home segment, there are faster growing categories, such as skincare and color cosmetics and.
While we do have a presence in skincare, we really don't have a significant presence to speak of in that fast growing you know color cosmetics Foundation lipstick type of market. So I think what you've seen is you know.
US making investments in areas that that give us the capabilities to go after some of those faster growing markets. So you know if we call that you know structural or market related on the other thing is is yes, I think those markets also our operating with a slightly different business model, it's all about speed to market.
It's all about innovation talk about design and again some of our strategic moves like the acquisition to be T Y like the acquisition the fusion PK G. Those are all addressing that changing landscape. As you said, yeah, and then maybe do add some color still on the the destruction.
Question.
As we said anything less than that three two factors at play one is it is starting to is.
The non repeat the especially of the Jane Jane Baby care launch a that we had last year and in addition, do is not repeating it's not doing well. So if you. If you want there is an element of Workforces you bet on and what the place how they win in the marketplace or not.
Just want to remind folks that that is at play here.
As well now on your the other question of course is one that we look at and re look at.
Frequently periodically.
Just as a reminder, when you look at our unit operations.
Huh precision injection molding high speed Assembly.
Between our fragrance business as a pharma business, they're basically identical with their friends that in pharma there in a clean room environment.
It was pharma quality systems, and all the regulatory requirements. So from an operational set up.
There's a lot of a expertise that we leverage across.
The company.
I'm also in terms of learning how to capture value how to drive value. We do that we now look at bringing services capability to the beauty business is something that we learned in the farm area.
And then last not least there would be a significant tax bill if you ever I wanted to separate the businesses and then the last point, though depends how you look at that at the moment you separate the business you've created a new competitor for the pharma business. So we look at that but it doesn't seem to make upon a sense. So.
He gave let me let me add one more kind of current living breathing example, right. If you. If you look at after the acquisition of CSP technologies right. We go back lets say three four years. The majority of what that business sold was to the pharmaceutical market diabetes pest trip.
Sales and the like and now what we see is applications very exciting applications for food safety type products now we're investigating applications potentially in the beauty market around cosmetics and into microbial technology. So I I think that's a good example of how.
So you know we focus more on the technologies and the capabilities that we have and how we can leverage that across multiple end markets.
Very much appreciated for thorough answer gentlemen, maybe slightly more positive note, Bob sometimes you give us kind of a flavor for how volumes trended by region.
More specifically thinking about beauty and home and there has been a little bit optimism down in Latin America. Just curious if you can give us any sense there.
Sure. So maybe maybe let's just start gave it the it at the at the consolidated level of overall laptop for Q4 and really all the regions were down with the exception of Europe. So Europe being the biggest region is what contributed to.
You know positively to to Q4, if we look at it by.
By segments, and specifically focusing on beauty and home you know we were down in all the markets that were in less of course in Latin America and less in Europe more so in Asia and the U.S.
And again looking for the full year looking out similar to the consolidated for Q4, Europe was a positive for beauty and home and the other reasons were down slightly.
Comparatively and then I think.
Are you know we saw good growth in Latin America, within our food and beverage categories or food beverage segment, rather and as we've been talking about.
Now on or decrease in Asia, and then farm, obviously very strong in the U.S. and in Europe, which is where the predominance of that pharma businesses, and then down into fourth quarter in Latin America, but that's off a very very small base.
Thank you very much good luck gentlemen.
Our next question comes from the line of Courtney Owens from William Blair. Your line is open.
Hi, Good morning, guys recording machine.
Hi, I'm not I guess the age.
We have made in Asia, I mean, how I guess in your guys mine, but are you thinking about how the corolla virus is going to kind of slow down or potentially unpack that a more like on the manufacturing and Mike supply chain perspective.
Okay.
Well he of course, if the short term and then the the mid to longer term in the short term I think this is all about.
Consumers.
Daring to get back out on the street and going into the stores a little on travel. So it is all about and getting the consumers of one of the three major economies back consuming.
Secondly.
I don't think it has any impact on the longer term trend.
We are moving more again to a world where regional fulfillment capability and agility is much more important the trade wars is a little bit over contributed to this but also just the fact of fast beauty you know we need to be able to react much more around.
Thirdly, and our customers see that too.
That didn't need to react much more rapidly launches that used to take 18 to 24 months and then if you really pushed it you could duty 12 now you need to get out the doing three you cannot do that by making things are a across the ocean and are planning to supply I think that way that really mean.
Means that we need to have key capability in each of the major regions.
And be flexible.
Made have a six month delay and setting up some of these local filling capacity because people don't like to get on a plane to do the scouting and due diligence and I think that's possible.
Got it thank you.
Regional perspective.
The in home as.
<unk>.
Talking about you guys are saying I know that it's predominantly Pablo <unk> and Asia Pacific, but if you kind of break that down is it just really in China or.
Other markets other key beauty and home markets like Korea, Branson's being really impacted right now.
Yeah, Let me just separate out so actually the the personal care de stocking in is mainly us into a bit in Europe.
So I want to keep that separate or not or combine it with now what are the uncertainty we have around the corona virus or impact on consumption in China and in travel retail, which you know is heavily tilted towards Asia.
Got it okay. Thank you.
Your final question today will come from the line of Adam Josephson from Keybanc. Your line is open.
Thanks, So much for taking my follow up questions I have three unrelated one spot Bob just Oh.
Nitty gritty one on options expats is it is should we still assume that you have the same six to seven sent hit in one Q that goes away thereafter, as it's been a case in years past.
No in fact, we've shifted more to a restricted stock model. So I mean, we we stopped issuing options last year. So no. We will have much more of a ratable expense going out a quarter to quarter.
Okay. So won't that one key won't be artificially depressed in any way just for that reason okay.
Stephanie Stefan when you came in when you took over you talked a lot about wanting to expand in Asia, and and specifically, China and if we look at the last couple of years, China's slow down and that was before the trade War and obviously there was the trade war and now there's Corona virus now you could argue corrado.
Iris is.
An unusual item SQL on its going to go away sooner rather than later, but the economy was slowing down well before Corona virus. As you know do you still have aspirations to get much bigger in Asia. As you did three years ago, or so and why or why not.
Yeah, great crushed and things that there's just short answer is yes, and the the reason is very simple the demographics are overwhelming.
And Ah that's not something that changes.
But it really a small anecdote.
Summing China expect the baby boom cannot towards the end of the year.
But oh joking aside the demographics overpower pretty much anything else and so the growth is there and then when you look at beauty is actually over indexes.
In Asia.
A lot of the growth that we've seen in our beauty business growth in Europe is really supplied to the Chinese consumer and that will not change. So that's why a btwob is the first step one step <unk> certainly will not be the last up and you need to go where the guy.
Growth is in.
The short term issues.
It will not change to your underlying trends.
Got it and thank you Stephanie just one last phenomena in the beauty and home EBITDA margin target. You said, you you're going to hit that target someway somehow I guess my question is I don't know how much cash you'll need to spend to hit that target, but maybe to the extent that you're not to lay out a fair bit of cash to hit that target.
Get maybe it is not the best use of capital in that case or how do you think about.
Hitting that target versus having to spend a lot of cash to do it and maybe not getting up until like particularly good return on that investment.
Yes look we all very humble people I'm not going to repeat myself in the corner and say hey leads into said this I'm going to make a irrational capital allocation decisions.
Clearly pharma is not wanting for resources.
And every transaction in investing and we look at the the create value on the other hand.
When I look at the growth rates in the beauty business the attractiveness of the beauty business.
The competitor the performance of competitors.
I see no reason why we shouldn't get there a little readily admit that we were banking on more growth in certainly my first priority was to get the business growing again.
But the phrase a prolonged period of slower no growth, we certainly need to do more on the cost side, but those will be decisions that are rational and that makes sense.
And create value.
Thanks, so much to find good luck.
I would now like to turn the call back over to Mr. tandem for closing comments.
Thanks, everybody for joining us looking forward to see on the road.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].